With venture-capital backing, the chief operating officer of Community Health Systems is starting a new hospital company that will acquire hospitals in rural and suburban areas.
Martin Rash formed a partnership with Golder, Thoma, Cressey, Rauner to start the Principal Hospital Co., Brentwood, Tenn. Like CHS, the investor-owned company will focus on acquiring rural and suburban hospitals.
"There's still a lot of room for consolidation in the hospital sector," Rash said last week, noting a pool of 800 nonurban hospitals that are possible acquisition targets for investor-owned systems.
"Our strategy is to back executives to consolidate industries," said Joseph Nolan, principal with the Chicago-based venture capital firm that manages $700 million in private equity funds. "The rural hospital business is pretty attractive, particularly with Marty's experience."
For the past 10 years, Rash had been with CHS, a Brentwood-based firm that owns 41 hospitals in 17 states.
In addition to CHS, Health Management Associates, a Naples, Fla.-based chain, has been popular on Wall Street, focusing on acquiring and operating rural and suburban hospitals.
This is the second start-up hospital company to focus on rural areas. Last year, two former Healthtrust executives, Dana McLendon and Robert Martin, formed New American Healthcare Corp. (Aug. 7, p. 72). Welsh, Carson, Anderson & Stowe, a New York-based venture capital firm, has invested $50 million in New American.
Rash is the second COO to leave CHS in two years. In March 1994, David White left to join Columbia/HCA Healthcare Corp., Nashville, Tenn.
CHS officials said the COO position would not be filled immediately.
That's not a problem because CHS has a "tremendous depth of management," noted Sheryl Skolnick, healthcare analyst in the New York office of Robertson Stephens & Co., an investment banking firm.